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Mispricing in stock index futures contracts: evidence for the FTSE 100 and FTSE mid 250 contracts

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  • Darren Butterworth
  • Phil Holmes

Abstract

This paper investigates the pricing efficiency of the FTSE 100 and FTSE mid 250 index futures contracts traded in the UK. The results show that while there are many deviations from fair value, these are generally quite small in magnitude with both contracts tending to be efficiently priced. Although mispricings are larger and more persistent for the mid 250 contract than for the FTSE 100 contract, this is consistent with the larger transactions costs and difficulties associated with trading the illiquid constituents of the mid 250 index.

Suggested Citation

  • Darren Butterworth & Phil Holmes, 2000. "Mispricing in stock index futures contracts: evidence for the FTSE 100 and FTSE mid 250 contracts," Applied Economics Letters, Taylor & Francis Journals, vol. 7(12), pages 795-801.
    • Handle: RePEc:taf:apeclt:v:7:y:2000:i:12:p:795-801
    DOI: 10.1080/135048500444822
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    Citations

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    Cited by:

    1. Nam, Seung Oh & Kim, Hyun Kyung & Kim, Byung Chun, 2010. "An alternative approach to evaluating the agreement between financial markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(1), pages 13-35, February.
    2. Patrick McGlenchy & Paul Kofman, 2004. "Structurally Sound Dynamic Index Futures Hedging," Econometric Society 2004 Australasian Meetings 80, Econometric Society.
    3. Chris Bilson & Tim Brailsford & Twm Evans, 2005. "The International Transmission of Arbitrage Information Across Futures Markets," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 32(5‐6), pages 973-1000, June.
    4. Stavros Degiannakis & Christos Floros, 2010. "Hedge Ratios in South African Stock Index Futures," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 9(3), pages 285-304, December.
    5. Vipul, 2008. "Mispricing, Volume, Volatility and Open Interest," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 7(3), pages 263-292, December.
    6. Maria CARACOTA DIMITRIU & Ioana – Diana PAUN, 2012. "Short Term Hedging Using Futures Contracts," Economia. Seria Management, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 15(2), pages 436-445, December.
    7. Sunil S. Poshakwale & Jude W. Taunson & Anandadeep Mandal & Michael Theobald, 2019. "Lower tick sizes and futures pricing efficiency: evidence from the emerging Malaysian market," Review of Quantitative Finance and Accounting, Springer, vol. 53(4), pages 1135-1163, November.
    8. Jahangir Sultan & Mohammad Hasan, 2008. "The effectiveness of dynamic hedging: evidence from selected European stock index futures," The European Journal of Finance, Taylor & Francis Journals, vol. 14(6), pages 469-488.
    9. Edyta Marcinkiewicz, 2016. "Short Sale and Index Futures Mispricing: Evidence from the Warsaw Stock Exchange," Prague Economic Papers, Prague University of Economics and Business, vol. 2016(5), pages 547-559.

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